In a virtual address to the Delaware State Chamber of Commerce on Friday, Philadelphia Federal Reserve President Patrick Harker indicated that the Federal Reserve is likely concluding its cycle of benchmark interest rate increases. Harker’s statement came as he observed, “Absent a stark turn in what I see in the data and hear from contacts, I believe that we are at the point where we can hold rates where they are.”
Highlighting the current policy’s restrictive nature, Harker asserted that maintaining steady rates would enable monetary policy to take effect, exerting a gradual downward pressure on inflation while maintaining market equilibrium. This approach aligns with the prevailing sentiment among market analysts who speculate that the Fed may have already reached the peak of its rate hike cycle.
Last month, the U.S. central bank opted to maintain its benchmark overnight interest rate within a range of 5.25% to 5.50%, citing a decrease in inflationary pressures. Notably, several Fed policymakers have advanced the notion that this rate could persist at higher levels for an extended period, a view which Harker supports. The Federal Reserve President underscored the potential adverse effects of elevated rates on the housing market, cautioning, “By doing nothing, we are still doing something. We are doing quite a lot.” Specifically, he pointed out that the Fed’s policy-driven uptick in mortgage rates may inadvertently confine existing homeowners, posing difficulties for prospective first-time buyers.
Harker concluded his remarks by expressing circumspection regarding rate hikes, while maintaining expectations for a consistent disinflationary trend throughout the year. Despite his optimism about the overall state of the economy, he acknowledged potential risks associated with labor strikes and the resumption of student loan payments. Harker anticipates that unemployment may crest at around 4%, while remaining sanguine about the likelihood of a recession.
Taken together, the statements of Philadelphia Federal Reserve President Harker strongly imply that the current phase of interest rate hikes may be reaching its conclusion. With inflation showing signs of easing and projections of sustained elevated rates, the Federal Reserve appears poised to maintain its present policy as the most prudent course of action to safeguard market stability and mitigate inflationary pressures.
Source: Reuters
